What if we let philanthropies operate like businesses? Let them pay for talent, advertise aggressively to build market share—even build a stock market for charity. Maybe then capitalism could finally save the world.

ENLARGE

Want to pay someone a half-million dollars to try to find a cure for pediatric leukemia? You’re considered a parasite. Getty Images

Today, Americans are the world’s most generous contributors to philanthropic causes. Each year, we give about 2% of our GDP to nonprofit organizations, nearly twice as much as the U.K. the next closest nation, according to the Chronicle of Philanthropy. Some 65% of all American households with an income of less than $100,000 donate to some type of charity, according to the Center on Philanthropy at Indiana University, as does nearly every household with an income greater than $100,000. These contributions average out to about $732 a year for every man, woman and child in America.

Yet we cling to a puritan approach to how those donations are spent: Self-deprivation is our strategy for social change. The dysfunction at the heart of our approach is neatly captured by our narrow, negative label for the charitable sector: not-for-profit.

It’s time to change how society thinks about charity and social reform. The donating public is obsessed with restrictions—nonprofits shouldn’t pay executives too much, or spend a lot on overhead or take risks with donated dollars. It should be asking whether these organizations have what they need to actually solve problems. The conventional wisdom is that low costs serve the higher good. But this view is killing the ability of nonprofits to make progress against our most pressing problems. Long-term solutions require investment in things that don’t show results in the short term.

We have two separate rule books: one for charity and one for the rest of the economic world. The result is discrimination against charities in five critical areas.

First, we allow the for-profit sector to pay people competitive wages based on the value they produce. But we have a visceral reaction to the idea of anyone making very much money helping other people. Want to pay someone $5 million to develop a blockbuster videogame filled with violence? Go for it. Want to pay someone a half-million dollars to try to find a cure for pediatric leukemia? You’re considered a parasite.

Two years ago, a group of senators raised questions about the compensation of the CEO of the Boys & Girls Clubs of America, which totaled $998,591 for 2008, nearly half of which consisted of catch-up obligations for her retirement. The critics ignored the fact that over the previous eight years, the CEO had tripled the Clubs’ network-wide revenue to $1.5 billion. Would the Clubs have been better off hiring a less talented CEO for $100,000 and leaving revenue stagnant, at a loss of $1 billion?

The Saturday Essay

We tend to think that policing salaries of charitable groups is an ethical imperative, but for would-be leaders, it results in a mutually exclusive choice between doing well for yourself and doing good for the world—and it causes many of the brightest kids coming out of college to march directly into the corporate world.

A second area of discrimination is advertising and marketing. We tell the for-profit sector to spend on advertising until the last dollar no longer produces a penny of value, but we don’t like to see charitable donations spent on ads. We want our money to go directly to the needy—even though money spent on advertising dramatically increases the money available for the needy.

In 2006, the consulting firm Changing Our World estimated that charities providing health care and human services spent about $1.5 billion on marketing, versus $729 billion for marketing in the rest of the economy. That translates into one message for health and human-services causes for every 479 messages for something else. This imbalance is a big part of the reason that charitable giving has remained constant in the U.S. at about 2% of GDP since we began measuring it in the 1970s. In 40 years, the nonprofit sector hasn’t been able to take market share away from the for-profit sector. But how can it if it isn’t allowed to market?